A visual version of tracking trading efficiency

In the Chris Sayce podcast on Chat with Traders, he talks about keeping two portfolios and equity curves - one relating to his actual trading, the other being what he calls his 'Discipline' portfolio, where he is able to track the theoretical performance had he followed his own trading rules to the letter. As he mused, the returns of the theoretical portfolio far outperformed reality. The closer his equity curve can mirror that of his Discipline portfolio, the better his ultimate performance.

This is a visual version of tracking what Van Tharp calls trading efficiency. He advises keeping a log to track your mistakes and quantify them in terms of R. I talked about this here.

Follow up testimonial

Arun is a trader I have been mentoring the last couple of years. He provided this lengthy testimonial a while back not long after we started working together.

It's safe to say that things have progressed pretty well since then. He has experienced the good periods and not-so-good periods, tightened up on his risk control, and worked a lot on his mindset. The upshot is profitable performance and developing the inner-confidence in what he is doing.

Yesterday he sent me the following note:

I'm sitting tight in these...

Despite the Dow and Nasdaq indices giving short signals a couple of days ago, I did not follow them and start switching my bias to the short side. Why? Because my existing long positions were holding up (refer to this post for more), combined with the uncertainty over the US and its 'Fiscal Cliff'. As a result, 2013 has started for me in positive fashion.

New testimonial

The beauty of a robust trend following methodology is that it can be applied to any market, in any part of the world. I have spoken to other traders (both new and experienced) in the UK, the US and the Far East, who are now applying it to their own local stock markets, as well as the other main markets around the globe. Tonight I received the following testimonial from a new trader in the Netherlands:

The rally keeps on going

The charts below show that both the FTSE and DAX have now made marginal new highs. The US indices somewhat lag (shown the S&P below) but have also made new highs off of the November lows. In all cases there has been a sustained rally over the last month or so, with very few 'down' days in that period.

Next webinar

The next webinar is scheduled for Tuesday 04 December at 2000GMT.

These last up to 2 hours or so and cover almost any questions or topics relating to trading from a trend following perspective.

To find out more details and to enrol, please click here.

Real time performance log tracker

I have now added a sidebar to the blog summarising the performance of the trades I have called in 'real-time' via the protected Twitter feed. This will be updated regularly.

The results achieved are very consistent across these two periods. The expectancy per trade (+0.53R) is the same, and the win percentage is almost identical (49% in the 2010-11 period, 50% in July 2012 onwards). The only difference, which accounts for the increase in the projected annualised performance, is that the average holding length of each trade has shortened from 5 weeks to 4 weeks.  This may change going forward, and will automatically affect the calculation of the projected annualised returns as a result. The other parameters affecting the risk per trade and position limits in both periods are the same

Having confidence in your method

Trend followers have a very simplistic view of the markets. We simply look at the trend of the price and follow it - if it's going up, we have a long bias, if its going down we have a short bias, and if it's going nowhere, then we can stay on the sidelines. All other sources of information can be ignored - price is all that matters.

Overtrading - with Bruce Kovner

In my own opinion, overtrading (trading too large positions relative to your equity) is the no.1 reason that inexperienced traders tend to blow up their accounts. Following up from my two recent posts about this subject, here is a short extract from Bruce Kovner's interview with Jack Schwager in Market Wizards talking about this very topic. Kovner has achieved incredible results in his trading career, so his views should be listened to:

Dealing with a losing trade

Historically, trend following strategies have been built on the premise that, although you may lose on the majority of the positions you take, the size of your winning trades you have is much greater. It is this that creates the overall positive expectancy of the system. This is quite a difficult picture for inexperienced traders to get their heads round - how can you make money if you lose on most of your positions?

Update on protected twitter feed performance

Since starting the protected Twitter feed back in July, and once again calling my trades in 'real time', the markets have given us a choppy uptrend, which looked like it may take off, followed by another bout of choppiness (and the resulting loss of open profits), before the general market trend reversed to short in the last week or so. Indeed, the FTSE has moved up less than 1% over the last three months.

Next webinar

The next webinar is scheduled for Tuesday 30 October at 2000GMT.
(NB UK clocks change this weekend).

These last up to 2 hours and cover almost any questions or topics relating to trading from a trend following perspective.

To find out more details and to enrol, please click here.

Riding the trend(s)

There are still plenty of stocks that are trending upwards despite the turbulence in the markets at the moment. Below I've shown three more examples of UK stocks marching upwards. Seing trends develop like these is one of the reasons why, if you are holding such a position, you should never close the trade without getting an appropriate exit signal. Who knows how long these trends will last?

Gold and silver on the slide

While taking a quick look at the charts of gold and silver it is clear to see that the uptrend from a couple of months ago is over, and that price is now going in the opposite direction.

Both the uptrends signals given in August were almost text-book, in that there was a contraction of volatility and a higher low created before the breakout occurred. We can now also see that there was a contraction in volatility and a lower high given immediately prior to the short signal being given earlier this week.

Some more nice uptrends

Given the current market environment, how much longer these uptrends will last is anyone's guess. However, the fact remains that these trends that generated nice profits over the last few months.

25 years on - Black Monday and trend following

19 October sees the 25th anniversary of 'Black Monday'. A lot of money was made (and lost) around that time - a look through the Market Wizards interviews shows how some of the best traders out there coped with an event, the likes of which had not been seen since 1929. These days there are 'circuit breakers' where trading is halted to prevent such a fall.

A change of trend

The markets are now giving conflicting signals, following the price action over the last few weeks. The Nasdaq appears to be the weakest index, with the most pronounced downtrend signal given by any major index early last week. The Dow went from hitting new intra-day highs to giving a short signal in the space of four sessions. The strongest index remains the FTSE, which remains some way off triggering such a signal.

Next webinar

The next webinar is scheduled for Tuesday 09 October at 2000BST.

These last up to 2 hours and cover almost any questions or topics relating to trading from a trend following perspective.

To find out more details and to enrol, please click here.

Follow the signals - Ceres Power

Here is a very vivid example of why you should automatically follow your exit signals, if you are utilising a trading method involving specific entry and exit criteria.

One of the guys in the mentoring programme went long on UK stock Ceres Power back in mid-July, after getting the appropriate entry signal. He then held on until an exit signal was given a few sessions ago, and pocketed a profit 7 times what he risked - a very nice return for pressing a couple of buttons and following the system. Today, the stock plunged over 70%.

Some nice recent trends

Here are some recent trends in stocks which have done very well. I hasten to add that I have not trade any of these stocks, however they all met the entry criteria when the current profitable trends started. There are plenty of potential signals on almost any given day, in both direction - some trends work out better than others, but as we trade a number of positions at any time, up to our pre-determined position limits, there's a good chance we can (and do!) catch moves of a similar magnitude.